Dr Doom: Euro must fall 30% to save Europe

The euro needs to see a sharp fall of at least 30%, bringing it into line with the US dollar, or else the eurozone is “doomed”, Nouriel Roubini has warned.

Speaking to Bloomberg TV at the World Economic Forum in Davos, Roubini (pictured) said only a sharp fall in the single currency could restore stability and competitiveness to the stricken continent.

The New York University professor known as ‘Dr Doom’, who correctly called the 2008 credit crisis, said: “I have been saying if the eurozone just does austerity – cutting spending and raising taxes – the recession is going to get worse.

“What is necessary is for the value of the euro to fall sharply – at least a 30% depreciation, close to parity with the dollar. Unless you restore stock and flow, the eurozone is doomed.”

The euro is trading at 1.3097 against the dollar today.

As financial pressure spreads from the periphery to the core of the eurozone, policymakers need “a bazooka and a firewall” to solve the crisis, Roubini added.

Meanwhile countries such as France have become part of Europe’s ‘soft core’, while the stronger nations such as Germany make up the ‘hard core’ in an increasingly twin track eurozone, he said.

Looking to the US, Roubini said although the Federal Reserve has provided some certainty over the outlook for interest rates, there are other sources of concern it cannot resolve, such as whether it will purchase treasuries or roll out more QE.

“Some interest rate clarity is useful but there is lots more uncertainty out there – how are they going to exit this liquidity expansion?” he said.